NEW YORK, March 24 — US Treasury Secretary Janet Yellen sought to reassure jittery investors that American bank deposits were safe and promised policymakers had more firepower to battle any crisis even as bank stocks resumed their slide yesterday.

Investors have dumped banking stocks globally over the past two weeks, with rapid interest rate hikes to rein in inflation blamed by some as the root cause of the debacle. US bank stocks slid again yesterday, pushing the S&P 500 banks index .SPXBK down to its lowest close since November 2020.

US lender Silicon Valley Bank’s collapse over bond-related losses tied to a surge in interest rates was the initial trigger for the turmoil, and JPMorgan Chase & Co analysts estimate the "most vulnerable” US banks likely lost a total of about US$1 trillion (RM4.4 trillion) in deposits since last year. Half of the outflows occurred in March after SVB’s collapse, they said.

Policymakers have stressed the turmoil is different from the financial crisis 15 years ago, and Yellen repeated that she was prepared to take more action to protect bank deposits if needed — one of the issues investors are concerned about.

"As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again,” Yellen said in prepared remarks to the US House of Representatives Appropriations subcommittee hearing.

"The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”

In Europe, the Bank of England became the latest central bank to hike rates this week.

After its eleventh straight hike, the BoE said it had noted the "large and volatile moves” in financial markets, but that Britain’s banking system remained resilient.

"We have learnt a lot of lessons from the financial crisis. Of course, we keep learning lessons, but I’m confident that the banks in (Britain) are in a much stronger position,” BoE governor Andrew Bailey told broadcasters.

Bank shares fall

While some of the panic over the fate of banks has abated, investors are now adjusting to more challenging economic and lending conditions ahead.

The index of top European banks fell 2.5 per cent, with German banking giants Deutsche Bank and Commerzbank falling 3.2 per cent and 4.1 per cent, respectively. London-headquartered HSBC dropped 2.9 per cent.

US banking shares initially rose yesterday with traders citing the Fed’s hints that it could soon pause further increases in borrowing costs as a source of some relief, but later turned negative.

Troubled US regional lender First Republic Bank, which is among banks speaking to peers and investment firms about potential deals, closed down 6 per cent. About 90 per cent of the bank’s stock market value has evaporated this month, leaving it with a market capitalisation of just over US$2 billion.

"Despite the strong efforts to protect, particularly First Republic, the crisis continues and investors are left wondering what is it that I’m not seeing,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

Other US banks under the microscope after the demise of SVB and Signature Bank added to recent losses. PacWest Bancorp, Comerica and Zion Bancorp each tumbled more than 8 per cent.

Truist Securities cut its price targets on regional banks including Zions and Comerica, warning of slower growth and higher credit costs.

The S&P 500 banks index, which closed down 1.2 per cent, has now fallen over 40 per cent from its record high in February 2022.

Bank bond pressure

Earlier yesterday, the Swiss National Bank raised its benchmark interest rate by 50 basis points and said the takeover of Credit Suisse — the biggest name ensnared by recent turmoil — by its Swiss rival UBS UBSG.S had averted a financial disaster.

To stop investor panic from spreading, the Swiss bank was rushed into the deal on Sunday with UBS Group AG, which along with Swiss authorities is racing to close the takeover within as little as a month, according to two sources with knowledge of the plans.

Spokespeople for UBS and Credit Suisse declined to comment.

"At this moment the focus has to be that we can maintain financial stability and that the closing of the deal is smooth and fast,” SNB Chair Thomas Jordan told a news conference.

The rescue of Credit Suisse has ignited broader concerns about investors’ exposure to a fragile banking sector.

Switzerland’s financial market regulator FINMA defended its decision to impose steep losses on some of Credit Suisse bondholders as part of its rescue, saying the move was legally watertight.

The decision to prioritise shareholders over Additional Tier 1 (AT1) bondholders rattled the US$275 billion AT1 bond market and some Credit Suisse AT1 bondholders were seeking legal advice.

The convertible bonds were designed to be invoked during rescues to prevent the costs of bailouts falling onto taxpayers as it happened during the global financial crisis in 2008.

Politicians are also wary of public perceptions that banks are being bailed out again, after anger over the sector’s costly rescue in 2008. US authorities say the recent support for SVB, in which all the bank’s deposits were protected, did not amount to a taxpayer-funded bailout.

The US Senate Banking Committee called on the former chief executives of SVB and Signature Bank to testify as lawmakers weigh possible action.

"You must answer for the bank’s downfall,” the panel’s Democratic chair and ranking Republican wrote in separate letters to former SVB Chief Executive Gregory Becker and former Signature Bank CEO Joseph DePaolo. — Reuters